The documents offer a unique look into how the Department of Justice conducts investigations into alleged violations of the Foreign Corrupt Practices Act. They also may give a measure of comfort to companies staring down the barrel of an FCPA probe. After months of investigation, prosecutors declined to prosecute the company.

But the case also highlights criticisms of the government’s enforcement model. Lawyers for the whistleblower who sparked the case say the government accepted the reports of Sempra’s white-shoe law firms without conducting any real investigation of their own.

As is often the case in FCPA investigations, Sempra hired outside legal counsel to conduct an internal investigation, in this instance– Baker & McKenzie and Jones Day. The firms billed long hours looking into allegations against the company made by the whistleblower–a former Sempra employee–and responded to subsequent inquiries from government lawyers and investigators. Neither firm found evidence of FCPA violations, and the Justice Department and the Securities and Exchange Commission agreed.

The case began in November 2010 after several San Diego media outlets reported on allegations of a former Sempra employee who claimed the company had regularly required him to approve bribes to Mexican officials for a range of services. The apparent whistleblower, Rodolfo Michelon, filed a lawsuit that month in California state court alleging he was wrongfully terminated in spring 2010 when he began raising questions about the alleged bribes.

Michelon was the former controller of Sempra’s Mexican operations, and said in his suit he could not reconcile the bribes with his responsibilities as a certified accountant. In response, Sempra turned to the media and labelled Michelon a disgruntled employee who was lying after he was let go in a routine reorganziation.

By February 2011, the FBI, the Justice Department’s Criminal Fraud Section, the San Diego U.S. Attorney’s Office and the SEC were all investigating Sempra. FBI reports recently released on the bureau’s website detail the investigation. The reports were in response to a Freedom of Information Act request made by Michelon’s lawyers and are heavily redacted.

According to the reports, the “whistleblower” alleged he was instructed by a high-ranking Sempra employee in 2006 to to pay roughly $13,000 to post a bond with the Ensenada, Mexico, Attorney General’s office. The “whistleblower” claimed he was told the bond would cover any damages stemming from the eviction of squatters on a Sempra property near a $1.5 billion liquefied natural gas plant the company built north of Ensenada. But, the “whistleblower” said, he came to believe the bond was actually a bribe to convince the attorney general to evict the squatters.

Representatives from each agency met with Baker & McKenzie lawyers in February to discuss Michelon’s allegations. By March, Jones Day was involved as well.

UPDATE: The lawyers said that an internal investigation backed up the company’s claim that the payment was a legitimate bond. The company turned over extensive legal documents and made witnesses available for interview, the report said. The Justice Department and the SEC then reviewed the evidence itself. The bond was returned to Sempra in early 2011.

“Given the evidence provided by Sempra to refute [the whistleblower's] allegation, DOJ concluded that no further investigation was necessary regarding this specific allegation,” the report said. “At Sempra’s request, DOJ provided two separate declination letters related to this specific allegation.”

But Michelon had made other claims that aroused DOJ’s interest. Prosecutors subsequently asked Sempra’s lawyers to investigate any cash transactions in Mexico over the last four years, any charitable or political donations exceeding $25,000 made by Sempra to Mexican officials, any consultants hired by the company in Mexico over the last four years, and allegations that the company offered cash to the members of the Navajo Nation Council to approve a Sempra resolution.

Sempra again turned over extensive documentation related to the government’s questions and provided in-person presentations related to some of the allegations. In short, the lawyers had found no violations of the FCPA. The Justice Department independently reviewed documents and interviewed witnesses and came to the same conclusion, according to the report.

“Based on the foregoing information, DOJ concluded that no additional investigation was warranted as all allegations had been adequately addressed by Sempra, and no enforcement action was necessary,” the report said.

The FBI closed its investigation in May 2011. The department reserved the right to renew the probe if new evidence emerged.

Michelon’s lawyers, Gary Aguirre and Daniel Gilleon, said in an interview that the government irresponsibly outsourced the investigation to the law firms.

“These guys are just swallowing the line of Jones Day, hook, line and sinker,” said Aguirre, a former SEC official.

Aguirre said the case is emblematic of a broken enforcement model that has saved Wall Street and others from meaningful prosecution.

Jones Day and Baker & McKenzie didn’t immediately respond to requests for comment. A Justice Department spokeswoman said “the department carefully reviewed the accusations” to see if there was evidence the law had been broken.

“After many months of investigation, including interviewing witnesses and examining numerous U.S. and foreign records, experienced prosecutors and agents determined that the facts did not warrant further action,” she said.

A spokesman for Sempra said the company provided all documents requested by the government and made employees available for interviews.

“We believe strongly that the conduct of our employees was both ethical and proper,” he said.

Comments (1 of 1)

Why should the FBI and DOJ conduct a thorough investigation? Sempra and all their entities always get away with murder. Nothing new! Sempra buys small companies and corrupts them very easily. This company loves to retaliate against anybody that questions them. End of story.

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